What Is Competitor Analysis? (Plus How To Perform One)

By Indeed Editorial Team

Published 16 May 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Competitive analysis is a research-oriented exercise that helps you gather and study information about business rivals in your industry. This is a common exercise for new and established business entities while entering a new industry or market. Undertaking this research can help a business improve different functions and processes like strategic planning, growth forecasting, marketing and product enhancement. In this article, we define competitor analysis, discuss its benefits and explain how to perform it.

What is competitor analysis?

If you're preparing a competitor analysis report, knowing the answer to, "What is competitor analysis?" can be an excellent way to begin. Competitor analysis is a method employees may use to research, examine and compare the different aspects of the business' competitors. This study aims to analyse how industry leaders operate, evaluate their strategies and resources, identify existing gaps in their capabilities and understand the internal and external forces that dictate the market.

Analysing the business strategies of competitors can help you understand the market, target audience and industry better. It can help new businesses launch their products and services effectively and help established companies improve their offerings. This information can assist businesses in developing, implementing and updating their marketing, pricing and product development strategies. Competitor analysis also helps identify potential threats and challenges and prepare for them adequately. This process can help businesses develop their unique strengths, identify weaknesses and spot opportunities for growth and development.

Related: What Is A Business Analyst? Definition And Career Advice

Benefits of competitor analysis

Here are some advantages of conducting analysing the competition:

Identification of market gaps

Most entrepreneurs and investors may want to understand the marketing dynamics of an industry before entering it. For this purpose, they usually conduct a comprehensive analysis of existing businesses before starting a company or expanding their product offering in a new category. Conducting a competitor analysis can help identify new opportunities and areas of business growth. By studying the competition, employees can understand the trends, growth and challenges unique to their industry. New companies and start-ups may even develop their core business strategies on the basis of this analysis.

Exploration of industry trends

Competitor analysis helps keep track of changing market trends, customer preferences and business paradigms. These exercises help companies evaluate the strengths and shortcomings of different rivals, gain insights on customer challenges and revise business goals and strategies timely. They also help identify new technologies, business opportunities, disruptions and best practices that the market is adopting and using for its benefit. This can help businesses create sustainable growth plans and remain competitive in the future.

Assessment of business strengths and weaknesses

Competitor analysis can also help businesses identify their own strengths and weaknesses. This can help leverage their unique strengths better and improve functions that require more investment. For example, after analysing their competitor activity, employees may conclude that a business' pricing is extremely high when compared to the industry average, and they can change it to attract more customers.

Related: SWOT Analysis Guide (With Examples)

Identification of effective marketing strategies

Competitor analysis can help evaluate the efficacy of sales and marketing campaigns of competitors. This can also help you develop marketing strategies to reach your target audience effectively. This exercise can also support you in identifying realistic performance indicators and success measures for marketing in your industry. By comparing the effectiveness of different competitor marketing campaigns, employees can ascertain the business' messaging, style and approach that seems to create the maximum engagement.

Setting business goals and targets

Analysing different kinds of competitors can help employees set their own targets for the business. By evaluating the existing market conditions and share of current competitors, companies can identify the scope for growth and set strategic targets accordingly. It can also help learn about potential threats and disruptions that other businesses are experiencing and help avoid them proactively.

Related: Business Strategy Components And Examples

How to conduct competitor analysis

Follow these steps to undertake competitor analysis:

1. Set the goals for analysis

The first step is to establish the goal of what the analysis wants to examine. You can focus on analysing the products, pricing, marketing, audience, shortcomings or strengths of your competitors. A comprehensive competitor analysis report includes all these aspects, but businesses can choose to focus on one or more elements. This can help optimise the data collection and analysis process and make the insights more specific.

2. Identify the competition

To compile a list of competitors, identify brands and businesses that customers would purchase from in your absence. Consider not just direct but also indirect and replacement competitors. Next, review search engine results pages (SERPs) for similar product inquiries, research market share statistics and find out which businesses have the same suppliers and wholesalers. Finally, shortlist ten, or fewer, of the most relevant businesses to ensure that each gets adequate time and attention.

3. Collect public information

Once the list of competitors is ready, start collecting publicly available information about these businesses. Company websites, social media pages and news articles can be good places to start. Next, check the company's history, annual reports, funding sources and any mergers or acquisitions. Find out the company size, growth, location and other preliminary information and categorise all competitors based on the same.

4. Study competitors' products and services

Analyse the complete range of products and services of all competitors. If certain products or services are in direct competition, you can also focus exclusively on them. Study their quality, popularity, sourcing and distribution. Find out how competitors procure their talent, materials and other service providers. This step aims to identify which product is the most popular in the market and the reasons behind the same.

Related: How To Become A Market Research Analyst: A Complete Guide

5. Focus on target customers

Customer research and analysis is an integral part of competitor analysis. Create user personas for all competitor businesses to identify their target audience. You can also find information about who the company is targeting by analysing its goals, mission statement, marketing and business communication. Compare the user profiles of different competitors to determine how many of them target the same audience and assess the level of competition in the market.

6. Compare the pricing strategy

Understanding the pricing strategy of business rivals is essential. Compare the price of different products and services in the market and ascertain the price sensitivity of the target audience. Find out if competitor businesses offer any discounts or have loyalty programmes. There are many pricing models and structures, like cost-plus pricing, variable pricing, dynamic pricing and freemium pricing. You can modify your existing strategy as per the findings of the analysis to match the industry standard.

7. Analyse unique competitor weaknesses

In addition to understanding the unique strengths and advantages of competitor businesses, it is vital to identify their weaknesses. Conduct customer surveys and focus group discussions with the target audience to discover the challenges they face using different products and services. You can also conduct randomised and anonymised product tests with customers to collect authentic and reliable feedback. This can help you identify the pros and cons of all leading products in your category.

8. Study their marketing strategy

Analyse the marketing and promotion tactics that competitor businesses use. Review their company website, blogs, white papers, reports, social media activity, podcasts, press releases and media kits to understand the tone and message they are using. Find out if they have affiliate marketing programmes and how effectively they generate new leads. You can study the most and least effective marketing campaigns of different competitors to identify which strategies work and which ones do not.

Related: What Is The Difference Between Sales And Marketing?

9. Identify your competitive advantages

Once you gather this information, compare the findings with your internal company documentation to assess the natural competitive advantages that your organisation has over business rivals. This could be in the form of lower prices, better quality or engaging marketing campaigns. Similarly, find out where the organisation can improve, what threats it faces and how to ensure sustainable growth in the future. This is a key focus area of the entire exercise.

10. Report your findings in the proper format

Collect all the information about your competitors and create a report. You can divide the report into several sections to highlight different rivals, business practices, recommendations and other analyses. Make sure to include a SWOT, or strength, weakness, opportunity and threat, analysis in the report. You can also represent data in easy-to-understand graphs and tables.

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